Question

What are the major components of the income statement? Why is it important for a business to have an accurate income statement?

Answer 1

Solution:

A) Following are the major components of income statement.

1) Revenue from main operations of corporation.

2) Expenses includes Cost of goods sold, Administrative and Selling.

3) Profits from operations

4) Other Revenues and Other Expenses.

5) Interest Expense

6) Income from discontinuing operations

7) Income tax expense

8) Net Income, Gross Profit and Earning Per Share

Etc

Example of Income Statement:

Multiple Step Income statement
For the Year
Sales Revenue			$             -
(less):Cost of goods sold			$             -
Gross Profit			$             -
Operating expenses:
Selling expenses
Delivery expense	$               -
Sales Commissions	$               -
Depreciation of sales equipment	$               -
Total Selling Expense		$           -
General and administrative expenses
Officers` salaries	$               -
Depreciation of office furniture and equipment	$               -
Total General and administrative expenses		$           -
Total operating expenses			$             -
Operating Income ( Gross profit - Operating Expense)			$             -
Other income
Rent revenue			$             -
			$             -
Other Expense
Interest expense			$             -
Income before income tax			$             -
(less): income tax			$             -
Net income			$             -
Earnings per Share			$             -

B) Importance of Accurate Income Statement:

1) Income Statement is the face of the company performance in the reporting period.

2) It is an indication of profitability of the company because it clearly states whether company is making profits or not in the reporting period by subtracting expenses from revenues.

3) Income Statement divides business and non business related revenues and expenses separately.

4) So, By this we can evaluate the company present situation and performance. In order to know all these details the income statement should be accurate in every aspect.